Abstract
AbstractWe examine the long‐run operating and stock price performance of 828 convertible debt issuers. Relative to matched, nonissuing firms, convertible debt issuers have small improvements in operating performance before the offer and significant declines in operating performance from pre‐ to post‐issue. We examine the relation between several factors and operating performance. We find that for some pre‐ to post‐issue periods, operating performance changes are positively related to firm leverage and the callability of the bond, and negatively related to performance run‐up before the offer and investment in new assets. We also find some evidence that firms that issued equity in the three years before their convertible debt issue have larger declines in performance after the offer. Relative to matched, nonissuing firms, convertible debt issuers have superior stock price performance before the offer and significantly poor performance after the issue.
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